CFDs vs share trading
Learn more about the differences between trading contracts for difference (CFDs) and share trading, and discover the benefits of each with our handy guide to CFD trading vs share trading. The page includes example trades and a detailed side-by-side comparison of the two types of trading to help you decide which is right for you.
Interested in trading CFDs with IG?
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What’s the difference between CFD trading and share trading?
The main difference between trading contracts for difference and share trading is that when you trade a CFD you are speculating on a market’s price without taking ownership of the underlying asset, whereas when you trade shares you need to take ownership of the underlying stocks.
One implication of this is that you can take advantage of leverage when trading CFDs, meaning you’ll only need to put up a fraction of the full value of the trade – the ‘margin’ – to gain full exposure. This will amplify any profits, but also means that losses can exceed deposits. When you trade shares, on the other hand, you’ll need to pay the full cost of your position upfront so cannot lose more than you invest.
What are the different benefits of CFD trading and share trading?
Both contracts for difference and share trading offer ways to take advantage of price movements in financial markets – and both can form part of your portfolio. Take a look at the key points below to discover the different benefits of CFD trading and share trading, and decide which is best for you.
| CFDs | Share trading |
| Trade a wide variety of financial instruments, including shares, indices, forex and commodities | Trade only shares and ETFs |
| Trade using leverage to spread your capital further and amplify profits | Pay the full value of your shares up front |
| Losses can exceed initial deposits on a given position | Limit risk to your initial outlay |
| Go long or short on a market’s direction | Trade only on rising prices |
| Positions are adjusted to offset changes from dividends | Receive dividends (if paid) |
| Trade around the clock on a number of markets | Trade only during stock exchange opening hours |
| No shareholder privileges | Receive shareholder privileges, such as voting rights on major company issues |
| CFD trading | Share trading |
Comparison of a CFD trade and a share trade
Buying Barclays
| CFD trade | Share trade | |
| Underlying price | 208 | 208 |
| Our price | 208 / 208.1 | 208 / 208.1 |
| Deal | Buy at 208.1 | Buy at 208.1 |
| Deal size | 2000 shares | 2000 shares |
| Initial outlay | A$208.10 |
A$4,162 |
| Close price | Sell at 229 | Sell at 229 |
| Profit | A$418* *Not including commission fees |
A$418* *Not including commission fees |
| Learn how to trade CFDs | Learn more about share trading |
The differences between CFD trading and share trading in detail
| CFD trading | Share trading | |
| What is it? | Trading a financial derivative – you deal on prices derived from the underlying market, not on the underlying market itself. Learn more about what CFD trading is and how it works. | The buying and selling of physical shares in a company. |
| Are there expiries? | No expiry dates (excluding forwards and options). | No expiry dates. |
| When can I trade? | We offer 24-hour trading on forex and major stock indices. During the underlying market hours for other markets. We also offer weekend trading on selected markets. | Only when the related exchange is open. |
| Do I pay to keep positions open? |
Overnight funding on all markets, except futures. Rollovers on futures. | |
| Does IG profit if I lose? | We profit primarily from commission, spreads and funding, and hedge the majority of net client exposure. We accept a low level of market risk, from which we can make a small profit or loss. The outcome of a client’s DMA trade never has an impact on our profit or loss. | We make our money from the commissions you pay on each trade. The outcome of a trade makes no difference to our bottom line. |
| What kind of trading is it suitable for? |
Intra-day Daily Medium-term |
Long-term Investing |
| Can I receive dividends? | We make a dividend adjustment on equity and stock index CFDs. | |
| Can it be used for hedging? |
Rarely, as other products are more effective. | |
| Range of markets | More than 16,000 markets, including: Forex Stock indices Shares Cryptocurrencies DMA forex DMA shares ETFs and ETCs Metals Energies Spot metals Soft commodities Options Interest rates Bonds Sectors Stock index futures Share forwards Forex forwards Daily stock index futures Daily oil futures |
Shares and ETFs only, but more than 13,000 from a range of stock indices in local denominations: Australia: ASX 200 ASX 300 And many other small cap Australian stocks US: S&P 500 DOW 30 NASDAQ 100 And many other small cap US stocks UK: FTSE 100 FTSE 250 Many other small cap UK stocks Germany: DAX HDAX MDAX Ireland: ISEQ |
| The charges | A spread on all markets except shares. We charge a commission on share CFDs, but no spread. Funding adjustments (excluding futures). |
Commission on all trades. A currency conversion fee on international shares. |
| Dealing platforms | Desktop dealing Mobile app (iPhone, Android, Windows) Tablet app (iPad) DMA MetaTrader 4 ProRealTime |
Desktop dealing Mobile app (iPhone, Android, Windows) Tablet app (iPad) DMA MetaTrader 4 ProRealTime |
| Direct market access (DMA) |
Yes, for forex (for IG professional accountholders only) and share CFDs. |
FAQs
CFD trading requires less capital upfront than share trading because it is a leveraged product. When you buy a physical share, you are paying the full cost of the asset upfront. When you trade CFDs, on the other hand, you will only be required to put up a percentage – known as a margin – which means you can access a position of equivalent size for less money. However, it is important to remember that your total exposure will be the same with both, so while leverage can magnify profits, it can also magnify losses.
The charges for share trading and CFD trading also differ. When you trade share CFDs with IG, you trade at the real market price. This means that there’s no spread – instead, you’ll only pay commission, and the costs of any funding adjustments or overnight fees. When you buy shares, you’ll need to pay commission and may need to pay a custody fee (dependent on your trading activity), along with any applicable charges and taxes charged by the country where the share is listed. Our fees and charges are set out in full on the CFD charges and share trading charges pages.
Yes, you can use CFDs to hedge your share positions. CFDs give you the opportunity to go short on markets, so they can be a great way to hedge short-term volatility by taking a position in the opposite direction of your share position.
If the market does fall in value, the loss to your share position would be offset by gains in your short CFD share trade. However, if the share price had increased instead, then you could close your CFD position and any losses would be offset by profits to your shareholding.
No, CFDs don’t have a settlement period. When you trade CFDs your profit or loss is calculated straight away when you close your position, which makes it much easier to enter and exit trades quickly.
Settlement is the point at which cash is paid, or received, in exchange for shares. For share trading it can take two or three business days after the transaction, before the money will enter or leave your account.
With CFDs, as you will not be taking physical ownership of the shares, there is not the same period of payment and payment can be settled straight away.
Discover CFD trading with IG
Learn about the benefits of CFD trading and see how you get started with IG.
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